What is the Ultimate Compounding Portfolio (UCP)?
The UCP is a portfolio designed to provide income for 1 year. It also is comprised of the some of the lowest risk assets you can buy. It’s a very simple portfolio with 2 investments.
Why is UCP Useful For?
The UCP is where you put your money for one year for maximum compounding. There are no coupons collected along the way. All of your money stays invested until the securities mature one year later. After one year, you can then update how you want to invest the money.
This portfolio isn’t for people who want lots of coupons to spend the money. If this is what you want, look for the Coupon Extravaganza Portfolio.
What is The Income Yield?
The income yield is 4.20%.
What are the Main Benefits of the UCP?
- High Interest – You get the best rates available, somewhat tied to Federal Reserve short term rates.
- Lock In – You will get a higher interest rate, locked in for 1 year.
- Lowest Risk – The risk of loss of your money is very low, almost zero.
- Market Based Securities – These securities can be bought at most brokers who sell CDs and Treasury Bonds.
- No Coupons – No need to manage coupons along the way, simplifying its management.
What are the Risks of the UCP?
By design, these investments are low risk.
The U.S Treasury Bills in the portfolio are very low risk. The reason is that the U.S Government under its agency can borrow, or print money to pay its debts. In the financial markets, Treasury bonds are often spoken of as being “risk free”. This is almost true.
Why is the risk of Treasury bonds not actually zero? Well, the U.S. Treasury doesn’t have unlimited authority to issue bonds to pay off debts. Its authority is limited by the debt ceiling established by Congress. It’s technically possible that some debt could default or be delayed in payment if the ceiling is reached.
This has never happened and it very unlikely to occur. Even if it did this doesn’t mean that all bonds would default. This discussion is not meant to suggest that Treasuries are risky at all, but let’s put everything out there.
The second type of investment in the portfolio are Certificates of Deposit (CDs), issued by banks. These investments are low risk because they are insured by the Federal Deposit Insurance Corporation (FDIC). If the bank fails, you get paid in full by the FDIC.
In actual practice, this doesn’t happen. When a bank fails, the FDIC saves the bank and it merges with a healthy bank. Customers may not even realize their bank failed.
How do I buy these Securities?
These securities can be bought at your broker or stock exchange. It is possible to buy CDs at your bank, but not Treasury bonds. It is easier to manage your portfolio if you buy both of these securities at your broker.
Can I Sell these Securities Early?
These securities are locked in for 1 year terms. It if possible to resell Treasury Bonds and also the CDs in the portfolio. This may be broker dependent. Check with your broker on reselling CDs before you buy them if this is a concern.
How Do I Find These Securities? What is a CUSIP?
All securities sold in public markets are registered with Securities and Exchange Commission (SEC) with an identifier called a CUSIP. This includes common stocks, bonds, and CDs. Since CDs and bonds don’t have stock symbols, you need the CUSIP to find it at your broker.
UCP Portfolio – 01/26/2025
| Security | Name | CUSIP | Description | Maturity | Yield/YTM |
| U.S Treasury | U.S. Treasury Bill, 1 year term left. | 912797PD3 | Treasury bond, pays coupon at maturity. | 1/26/26 | 4.25% |
| CD | MainStreet Bank VA | 56065GBY3 | CD – Pays coupon at maturity – January. Not callable. | 1/29/26 | 4.20% |